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ASEAN STOCK WATCH Asean Affairs  28 August 2012

ASEAN Markets to Come Under Pressure

By Shayne Heffernan Ph.D.

Cleveland Fed President Sandra Pianalto and Charles Evans of the Chicago Fed bank, however, largely stuck to their previous stances, offering little insight into whether the U.S. central bank will ultimately do more to help the recovery.

With economic growth slow and unemployment high, economists see a decent chance that the Fed could launch a third round of asset buying, known as quantitative easing (QE3), when it meets next month.

But there are both benefits and limits to such a move, said Pianalto, a voter this year on the Fed's policy committee. "I am supportive of actions that provide economic benefits with manageable risks," she told a business audience in Newark, Ohio.

Chairman Ben Bernanke and other Fed officials have aggressively eased monetary policy to battle the recession, including more than three years of ultra-low interest rates and $2.3 trillion in asset purchases.

On August 1, the central bank kept monetary policy on hold, leaving interest rates at zero and reiterating the view that economic conditions will warrant keeping them there until at least late 2014.

Many policymakers thought more stimulus would be needed "fairly soon," the minutes of the meeting show, but wanted to watch the data for signs of improvement that would render moot the need for additional easing.

Since then, job creation rebounded in July after four disappointing months, and economic data has been marginally upbeat in recent weeks. Yet overall tepid GDP growth and a troubled labor market may cause central bank officials to do even more.

The next meeting is set for September 12-13, though all ears will be on Bernanke's much-anticipated speech in Jackson Hole, Wyoming on Friday for clues on policy.

Global stocks edged up on Monday and U.S. Treasuries prices rose on expectations of further stimulus from the Fed and the European Central Bank, which is battling that continent's simmering debt crisis.


Coastal Contracts Berhad announced that its wholly-owned subsidiaries have secured contracts for the sale of one unit 300 Men Accommodation Work Barge, one unit Anchor Handling Tug Supply and two units low-end vessels for an aggregate value of approximately MYR 141 million.

Coastal Contracts Bhd has secured sales orders for a barge and three vessels with a total value of RM141mil, boosting its vessels sales order to RM711mil.

It said on Monday its units had secured a contract for one work barge which could accommodate 300 men, an anchor handling tug supply vessel and two low-end vessels.

“Including the new contracts and after adjusting for revenue recognition from vessels delivered to buyers in the second quarter, Coastal Group has about RM711mil worth of vessels sales orders awaiting delivery to customers up to 2013,” it said.

Coastal Contracts Bhd is an investment holding company. The Company is engaged in shipbuilding, ship chartering, repair & maintenance and trading of marine support vessels, serving clientele from offshore oil & gas industry, mining sector, commodities sector, marine traders, national navy, etc.

It operates in two segments: vessels manufacturing and repairing services, which include fabrication and sale of marine transportation vessels and provision of ship repairs and maintenance services, and vessels chartering and equipment hire, which include the provision of vessels transportation and equipment hiring services. In August 2012, the Company announced that its wholly owned subsidiaries secured contracts for the sale of one unit 300 Men Accommodation Work Barge, one unit Anchor Handling Tug Supply and two units low-end vessels.
Institutional Holders
% Shares Owned:                   7.16%
# of Holders:                          17
Total Shares Held:                   34,607,627
3 Mo. Net Change:                  8,653,929
# New Positions:                    3
# Closed Positions:                 1
# Increased Positions:             5
# Reduced Positions:               2
# Net Buyers:                         3
Valuation Ratios

                                               Company    Industry        Sector
P/E Ratio (TTM)                         5.08          27.32            22.91
P/E High – Last 5 Yrs.               13.48          74.62            63.14
P/E Low – Last 5 Yrs.                 3.44          15.02            12.36
Beta                                        2.01            0.93              1.00
Price to Sales (TTM)                 1.15            1.77             1.83
Price to Book (MRQ)                  1.18            1.25             1.30
Price to Tangible Book (MRQ)     1.18            1.96             1.89
Price to Cash Flow (TTM)            –              20.37           14.23
Price to Free Cash Flow (TTM)    17.58          0.85            10.85
% Owned Institutions                  –               –                  –

                                                   Company      Industry       Sector
Dividend Yield                               4.21             2.01            2.39
Dividend Yield – 5 Year Avg.           1.97             1.06            1.80
Dividend 5 Year Growth Rate          23.87           13.37           6.30
Payout Ratio(TTM)                       12.28             25.23          38.51


Trai Thien USA Inc (PINK:TRTH)

Trai Thien USA is a fast-growing Vietnam-based dry bulk shipping company operating a 21,990 DWT fleet comprised of six geared bulk vessels specializing in providing ocean transportation services for raw material input items such as coal, ore, grain, lumber, cement, steel and fertilizer throughout the Southeast Asia region.

After China, the primary sources of future bulk demand are India, Brazil and Vietnam. The region contains three of the four global BRICs (Brazil, Russia, India, China), seen by economists as the future growth leaders in the world economy.
The Asia Pacific region accounts for 60% of the world’s population and almost 70% of world sea-borne trade in bulk commodities.

In order to meet anticipated continued growth in demand from an expanding base of overseas and domestic Vietnamese customers, as well as to expand the geographic regions that it can service to include potentially more profitable routes in East and South Asia.
The Company’s Vietnam-based operations are located in Ho Chi Minh City, which together with the surrounding areas, accounts for more than seventy percent of Vietnam’s total annual cargo traffic.

Pink Sheets TRTH
Current Price $0.51
Current PE 4.19
Revenue Growth 148%
Target Price 2013 $3.40
HCM Rating Strong Buy

Financial Highlights

The emerging economies of the Asia Pacific (ASEAN) region will continue their growth pattern despite the continuing financial crisis in Europe according to the Asian Development Bank.

Free Trade Agreements including ASEAN, AFTA, CAFTA, ASEAN +3 will more than triple regional trade.

· Year-end 2011 revenues increased over 20.9% as compared to the previous fiscal year, from $12,232,991 in 2010 to $14,794,939 in 2011.

· Income from Operations increased over 148% from 2010 to 2011, from $1,051,543 to $2,615,000

· Net Income increased from a loss of $539,452 in fiscal 2010 to a positive $1,377,391 in 2011.

· The Company is operating a 21,990 DWT fleet comprised of six geared bulk vessels specialized in providing ocean transportation services for raw material input items such as coal, ore, grain, lumber, cement, steel and fertilizer throughout the Southeast Asia region.

The HCM Trade Forecast is predicting that world trade will grow by 73% in the next 15 years, with merchandise trade volumes in 2025 hitting $43.6trillion compared to today’s $27.2trillion.

Investing in Tra Thien

ASEAN +3 is the Association of Southeast Asian Nations (ASEAN), the People’s Republic of China (including Hong Kong), Japan, and South Korea. Home to 600 million people, ASEAN has a combined gross domestic product (GDP) of US$1.8 trillion with total trade valued at $2 trillion among the countries.

ASEAN is set to explode as an economic force in 2015 as financial, trade and investment rules become integrated and seamless. ASEAN last year secured $78.5 billion in investments. Regional trade also increased by 32.9 percent to more than $2 trillion and Trai Thien is well positioned to capitalize on the growing Inter-ASEAN +3 trade.

ASEAN is beefing up various frameworks for cooperation and development within the region and with its trading partners, in preparation for regional economic integration by 2015.

The changing trade barriers have seen fast paced growth in agricultural and mineral exports around the region, these changes have already reflected themselves on the books at Trai Thien USA as revenue has almost tripled in the last year.

The Trai Thien fleet has the distinct advantage of having been designed to suit the region, while huge Dry Bulk Carriers service many areas. Most of the trade in agriculture and minerals is done from ports in ASEAN that cannot accommodate the large ships, nor can the large ships be loaded and unloaded at these smaller ports due to the lack of stevedoring infrastructure.

Trai Thien smaller fleet can service these ports directly, removing the additional costs of trans-shipping and adding savings in terms of cash and time to purchasers.

Based on corporate and market growth and given a conservative set of ratios in our financial model, we see Trai Thien trading over $3.40 in 2013.

The Fleet

• Fleet of highly versatile geared bulkers with average capacity of 3,700 DWT and average age of 3 years.

• Optimal payload capacity for growing small and medium production sector that dominates economic activity throughout the region.

• Focus on dry bulk commodities such as forestry products, grains, cement, steel, ore and coal.

• Vessels equipped with deck-side cranes which provide flexibility in cargo handling and accessing and servicing underdeveloped, lower cost secondary ports throughout the region.

• Draft efficiency and deck-side gears reduce dependency on major ports and reduce risk exposure to growing operational inefficiencies affecting them.

• In order to meet anticipated continued growth in demand from an expanding base of overseas and domestic Vietnamese customers, as well as to expand the geographic regions that it can service to include potentially more profitable routes in East and South Asia, Trai Thien has made deposits to acquire six larger 7600 DWT capacity new-buildings, which depending on the company’s ability to meet additional capital resource requirements, are expected to be delivered in 2011 and 2012.

• Depending on the ability to raise approximately $50m in external funding required to cover outstanding balances due on vessels in construction, for which there is no assurance, the Company will focus on what it believes to be more profitable 7000-8000 DWT vessels in order to meet growing demand for larger payload capacities while still maintaining an ability to broadly access the secondary coastal and river ports that characterize the trade.

• Located in Ho Chi Minh City, the economic heart of Vietnam’s trade and transportation activity.
• ASEAN satellite market benefits from geographic proximity to major world economic activity drivers China and India.

Trai Thien and China

Our research indicates that rising trade in ASEAN +3 will propel the ASEAN trade bloc of Southeast Asia nations to become China’s largest trading partner by 2015.

The China Council for the Promotion of International Trade said the 2010 ASEAN-China Free Trade Agreement removed trade barriers, and that the value of imports and exports between China and ASEAN states could surpass $500 billion within three years.
As China moves away from its dependency on export markets and encourages more trade with countries with which it has signed FTAs, the value of goods moving between the ASEAN bloc and China is forecast to increase at a faster rate than imports and exports between China and its more established trade partners.

“Thanks to zero tariffs, preferential trade policies and geographic advantages, both the increasing speed and scale of that trade will be in the forefront globally and ASEAN will become China’s No. 1 trading partner by 2015,” said Zhang Wei, vice chairman of the China Council for the Promotion of International Trade.

First quarter 2012 trade between China and the ASEAN nations — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — increased 9.2 percent year-over-year. That is compared with a 2.6 percent gain in trade between China and the U.S. and a 1.6 percent decline in trade between China and the EU.

That growth followed the 24 percent increase in trade between ASEAN and China last year when the ASEAN bloc surpassed Japan to become China’s third-largest trade partner after the EU and the U.S.
Trai Thien is located at the geographic centre of ASEAN +3 and is perfectly placed to capture increasing market share in a rapidly growing market.


Sembcorp Marine’s wholly-owned Jurong Shipyard has secured a $135 million project contract from deepwater drilling company Diamond Offshore.

The rig, to be named the Ocean Apex, will be constructed utilizing an existing hull from a Diamond Offshore cold stacked unit, Diamond Offshore said in a statement. Diamond Offshore added that the total project cost is expected to be approximately $370 million.
According to Sembcorp Marine, the moored semisubmersible will be built at Jurong Shipyard in Singapore, and is due for delivery in 2Q 2014. It will be able to drill in up to 6,000 feet of water.

Its design specifications include a variable deck load of 7,000 long tonnes, a maximum hook-load capacity of two million pounds, crew quarters capacity for 140 personnel, and a very large deck space, Sembcorp Marine added.

Economist Shayne Heffernan has an $8 price target on Sembcorp Industries Ltd (SCIL.SI)

Sembcorp Industries has begun commercial operation of its newest and largest industrial wastewater treatment facility on Jurong Island.

In a statement on SGX, Sembcorp said the S$40 million plant more than doubles its current industrial wastewater treatment capacity in Singapore. The new plant can treat multiple streams of complex industrial wastewater up to 9,600 cubic metres per day.

The wastewater treatment plant will serve chemical and petrochemical companies in the newly developed Banyan, Tembusu and Angsana districts of Jurong Island.

It is part of Sembcorp’s upcoming S$960 million cluster of facilities to serve companies setting up operations in these newly developed areas of the island.

Currently still under construction, these upcoming facilities include a combined-cycle gas turbine cogeneration plant and a multi-utilities centre.

With these new commitments, Sembcorp’s total investment in Jurong Island since 1995 will hit S$2.7 billion.

In addition, Sembcorp has announced the development of a new technology and innovation centre comprising laboratories and applied research and development facilities on Jurong Island.

Institutional Holders

% Shares Owned:                          63.41%
# of Holders:                                195
Total Shares Held:                         1,133,534,916
3 Mo. Net Change:                        4,651,826
# New Positions:                          11
# Closed Positions:                       4
# Increased Positions:                  47
# Reduced Positions:                    49
# Net Buyers:                              -2

Valuation Ratios
                                             Company    Industry    Sector
P/E Ratio (TTM)                      11.86            9.90            11.88
P/E High – Last 5 Yrs.              19.83            95.69           81.23
P/E Low – Last 5 Yrs.               8.21            14.22            13.65
Beta                                       1.17             0.81             0.75
Price to Sales (TTM)                0.99             1.90             1.85
Price to Book (MRQ)                 2.42             0.47             0.53
Price to Tangible Book (MRQ)    2.62             0.51             0.59
Price to Cash Flow (TTM)          6.93            12.24           11.85
Price to Free Cash Flow (TTM)     –               2.17             2.13
Sembcorp Industries Ltd is engaged the production and supply of utilities services, terminalling and storage of petroleum products and chemicals. It operates in four segments: Utilities, Marine, Integrated Urban Development and Others/Corporate. Utilities focus on the provision of energy, water and on-site logistics and solid waste management. Marine focuses principally on repair, building and conversion of ships and rigs, and on offshore engineering.
Integrated Urban Development owns, develops, markets and manages integrated industrial parks and townships in Asia. Others/Corporate relates to minting, design and construction activities, offshore engineering and the corporate companies. In January 2012, it incorporated Sembcorp Utilities India Private Limited. In April, 2012, it opened a woodchip-fuelled biomass steam production plant. In July 2012, its wholly owned subsidiary, Sembawang Capital, divested its entire 20% shareholding in Arian Engineering Corporation.

Shayne Heffernan Ph.D.  

Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
3 Raffles Place #07-01
Bharat Building Singapore 048617
Tel: +65 6329 6408 Fax: +65 6329 9699
Email :
Suite 53 Athenee Tower
63 Wireless Road, Lumpini, Pathumwan, Bangkok 10330
New York 347 5th Avenue, Suite 1402-508 NY, NY 10016


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